Featured Article: Economist Jim O’Neill explains how the dollar will lose its ‘kingpin’ status

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Click the link below to read today’s feature article by Sam Meredith and Steve Sedgwick. Then, contact us to learn more about how the changing value of the US Dollar can impact your portfolio, and how you can protect yourself with gold.

Economist Jim O’Neill explains how the dollar will lose its ‘kingpin’ status

  • The greenback’s status as the world’s most powerful currency has been questioned for decades but contracts based on the U.S. dollar continue to dominate global markets
  • However, in recent months, speculation has intensified that China could be poised to make a major move against the dollar’s dominance
Sam Meredith | Steve Sedgwick

Headlines: 11/14/2017

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Central banks might need 1,000 rate hikes to unwind their response to the Great Recession

  • Since the Great Financial Crisis, there have been about 700 rate cuts made by central banks around the world.
  • As the economy recovers, banks will have to unwind actions taken during the recession.
  • This will create challenges for markets and investors.

 

DEUTSCHE BANK: Something ‘very unusual’ is happening in markets

 

Strategist Jim Paulsen warns that returns are about to shrink as Fed ‘juice’ runs dry

  • Strategist Jim Paulsen of the Leuthold Group is warning of lower returns as the Fed reduces liquidity to the financial markets.
  • For investors, that means a switch to value over growth, international over domestic, and inflationary sectors over disinflationary groups.

 

‘Irrational exuberance’ hits record high among fund managers despite lofty valuations

  • Though investors think that stocks are too expensive, they are still pushing money into those equities
  • This indicates that investors believe markets will continue to rise despite these lofty valuations

 

Economist Jim O’Neill explains how the dollar will lose its ‘kingpin’ status

  • The greenback’s status as the world’s most powerful currency has been questioned for decades but contracts based on the U.S. dollar continue to dominate global markets
  • However, in recent months, speculation has intensified that China could be poised to make a major move against the dollar’s dominance

 

Ray Dalio’s Bridgewater Boosts Gold And Emerging Markets Holdings

Ray Dalio’s Bridgewater, the largest hedge fund in the world, strongly increased its investments in emerging markets and gold during the third quarter, according to its portfolio announcement.

Headlines: 11/11/2017

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Gold drops in sudden move lower

My comments: These “mysterious” moves in gold are not all that
mysterious to those that have been watching these markets for any
length of time. There are issues and factors that influence the price
of gold and silver, and this move was no different.

How Germany got its gold back

Excerpt: “Germany has a stronger relationship with gold than most
nations. The country’s experience with hyperinflation between 1919 and
1923, during the years of the Weimar Republic, is ingrained in the
national consciousness. Gold, above all, stands for stability.”

Mysterious Gold Trades of 4 Million Ounces Spur Price Plunge

My comments: Now ask yourself, who benefits from keeping the gold
price low? I’ll give you a hint. #stockmarket #banks

Here’s Why Barrrick Gold Plunged 10% in October

My comments: When you buy mining stock, you are NOT buying gold. You
are buying a company whose product is gold. These issues like the one
explained in this article are why you need to purchase physical gold
and silver. Real wealth doesn’t need a bailout.

Headlines: 11/10/2017

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Happy Veterans Day! Thank you to all veterans for their service.

 

Today’s headlines deal largely with the recent junk bonds and GOP tax plan concerns. At Empower Investments we encourage you to practice the three E’s: Educate yourself, Evaluate your options, and Execute a winning strategy. Let us know if we can help. Now, onto the headlines. Click the headline to be taken to the article, and then contact us to apply what you have learned.

Silver’s bullish underpinning — it’s an essential metal for these 3 growth industries

 

Companies rush to sell bonds to get ahead of tax plan, sparking ‘carnage’

 

Palladium just settled above $1,000 an ounce for first time since 2001

 

Stock-market investors are starting to freak out about this ugly chart

 

Bank of America/Merrill Lynch says stock market fall ‘not the Big One’

 

Opinion: Why stock-market investors should be worried about the junk-bond market

 

The most expensive doughnut in the world is covered in 24-karat gold

Kevin O’Leary from TV’s Shark Tank Recommends Gold

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I love the TV show Shark Tank. It’s rare that I miss an episode. If you’re unfamiliar, the show is about entrepreneurs seeking funding for their respective businesses from self-made billionaire investors and advisors that are called “sharks.” These sharks are all self-made billionaires and as the entrepreneurs make their pitches, the sharks drill these entrepreneurs on their sales and marketing strategies, their costs and expenses, and more.

The toughest shark in my estimation is Kevin O’Leary. Having made his billions in education, Kevin O’Leary is also the chairman of O’Leary Funds, a $1.5 billion mutual fund company and the star of CBC’s Dragons’ Den and ABC’s Shark Tank. Kevin is shrewd, often offering debt and royalty deals in lieu of cash and equity. He loves dividends and he is a slave to the bottom line at all costs. Kevin’s style of investing and dealing has earned him the nickname Mr. Wonderful on the show, and as it turns out, Mr. Wonderful likes gold.

In an article with Kitco, Kevin was quoted saying,

“I like gold because it is a stabilizer, it is an insurance policy,” said O’Leary. He said that it is the only security he owns that doesn’t pay a dividend. As part of his investing philosophy, O’Leary is insistent on only owning stocks that pay a dividend.

“I listen to all the gold pundits and they are always wrong. It is impossible to time the moves…I have owned gold for decades…”

Kevin doesn’t believe in gold stocks, but in owning physical gold like what we sell at Empower Investments. In an interview with Benzinga O’Leary was quoted saying,

“I have a two-and-a-half kilo brick that I like to slam on the table on Sunday nights, and I show it to my kids saying you’ll never own this,” O’Leary told Benzinga. “This you’ll never own unless you get a job and buy your own.”

He said the bar is essentially useless and doesn’t pay a dividend, but it merely supplements his gold portfolio. Still, O’Leary recommended potential gold investors bring home the physical bricks.

While many stock and mutual fund investors prefer gold stocks, Kevin O’Leary avoids mining stocks in favor of physical gold.

“The reason gold stocks are not performing in tandem with the price of gold comes down to “idiot management,” said O’Leary. ” There is no reason to own the miners. If your cost to actually mine an actual ounce keeps going up, why would I ever buy the stock?”

I don’t typically recommend taking investment advice from television personalities, but in this case, I would make an exception. Kevin O’Leary is the real deal and O’Leary Funds is a powerhouse. Plus, all signs point to a stock market correction and owning gold can help offset losses in paper investments.

If you like Mr. Wonderful and Shark Tank like I do, you should do yourself a favor and look into owning physical gold and silver. Contact us today for a FREE consultation.

 

Market Headlines: David vs Goliath

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As I look at the news, I can’t help but feel that there is a disconnect between the everyday investor and the so-called experts that we read about and watch on television. That may be stating the obvious, but even today the headlines show that what we see and feel in these markets and in this economy, is quite different from what the policymakers and analysts see and feel. For example, this headline:

There’s still one thing missing from this booming economy: Fatter paychecks

  • Average hourly earnings edged lower in October with weekly wages down 35 cents from September and up just 2.4 percent on an annual basis.
  • The economy in 2017 has created an average 148,000 jobs a month, the slowest in at least six years. The tight labor market, however, has not pressured wages.

While the markets celebrate the jobs report, the average American worker has not benefited from this so-called growth. Then there’s this headline:

Don’t celebrate those cuts just yet. This tax overhaul could leave you high and dry.

  • The proposed standard deductions of $12,000 for singles and $24,000 for married-filing-jointly may not be so generous after all.
  • Large families and residents in high-tax states may not fare well.

While pundits praise the GOP’s tax plan, smart investors know that the tax plan won’t likely benefit most Americans. So what then are we celebrating and praising?

Then there is my personal favorite headline. This article is from a few months back, but the sentiment holds true today:

If the stock market can make you rich, why are so many Americans poor?

The Dow Jones is up over 300% since 2009, but how many stock market investors have made anything close to that? Every day we see a new all-time-high in stocks, but most people I talk to are happy with their 10 or 12 percent returns. Why isn’t the average investor making 300%?

I don’t mean to make this an “Us vs. Them” thing, but when you’re the “little guy” averaging between 8 and 12 percent returns, but the “big guys” are raking in 200% returns, one wonders where the disconnect may lie. However, here is a better question: Who do you think will be hit hardest when the market starts to come down? Logically, it should be the big guys with their big gains, but historically, it’s the little guy that loses his or her 401k or IRA value, while the big guys get golden parachutes.

The sentiment is changing. While they talk about all-time-highs, we read and watch some contrarians that are pointing out the flaws in their logic. For example:

Market optimism hits Black Monday-level peak, a ‘potential significant danger’

  • The spread between bulls and bears hasn’t been this high since early 1987, shortly before the Black Monday market crash, according to the latest Investors Intelligence reading.
  • Bulls in this week’s survey totaled 63.5 percent against just 14.4 percent for bears. A spread above 30 points signals “elevated risk” while 40 points calls for “defensive measures.”

The stock market’s valuation is back to the point where Greenspan warned of ‘irrational exuberance’

  • The Shiller CAPE ratio is at about the level as when then-Fed Chairman Alan Greenspan gave his widely cited “irrational exuberance” speech in 1996.
  • The only time valuations were higher was around the time of the stock market crash and beginning of the Great Depression in 1929 and during the dot-com boom in the late 1990s.

 

Diversify with Gold

Make no mistake, the correction is coming. Will you bear the brunt of it like you did in 2008, or will you prepare yourself and get one step ahead of the “big guys” by investing in precious metals?

Remember this?

  • In August 2008, the S&P 500 was at $1292. By March 2009, it was at $683. That’s a 47.1% drop! By August 2011, after bailouts, stimulus, and the nationalization of banks, the S&P was back to $1,185.
  • In August 2008, Gold was at $740 an ounce. By August 2011, Gold was at $1,900 an ounce! That’s a 157% move in three years!
  • In September 2008, silver was at $10.50 an ounce. By August 2011, silver was at $43 an ounce! That’s an increase of 309% in just three years!

Whether you are a little guy or a big guy, you should know that all markets are cyclical and that what goes up must come down. Prepare yourself and protect your wealth by diversifying with gold. When the giant falls, you’ll be glad that you did.

The Purchasing Power of Gold

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I love this quote. Using the suit illustration to demonstrate the purchasing power of gold is something that most gold traders and investors are familiar with, but when I came across it in this article: Former Lehman Brothers Trader: Unpredictable Government Actions Make It Smart to Hold Gold it felt more powerful.

In this Forbes piece by Shannara Johnson, former Lehman Brothers trader Jared Dillian explains why he believes in owning physical gold. The piece starts by asking, “What does a hot-shot Wall Street trader see in physical gold? And why would he be adamant about holding it?” Dillian answers that question effectively first by referencing the suit illustration above, then by stating:

“Dollars have depreciated over time; pretty much any fiat currency has. So when I look at gold, I don’t look at it like, it’s going to go up and I’m going to get rich. It’s actually not a trade—it’s the furthest thing from a trade. It’s a way to maintain your purchasing power over time.”

Do you have that purchasing power?

The Best Gold Article I’ve Read All Year

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In the Bloomberg article “Is Gold Really a Good Hedge?” the author, Cameron Crise, takes a skeptical stance and employs “a Mythbusters-style approach” to discover the answers.

 

“My first step was to search for evidence of a statistical relationship between risk aversion and the gold price. I used the CBOE Volatility Index (VIX) as a proxy for market risk aversion and ran a series of multifactor regressions to determine whether equity volatility is statistically significant as an explanatory variable for gold. The answer, somewhat to my surprise, appears to be yes.” – Cameron Crise

 

Every day I search the internet looking for news and insight that can help me serve my clients. There are the usual “this stock is going to the moon” suspects, and of course, there are the “gold going to the moon” articles as well, but I have to sift through the bias and look past the agendas to find the true gems. This was one such gem.

You can read the entire article here and I recommend that you do, but the highlight of the article for me was this chart and the accompanying breakdown:

A chart from the article “Is Gold Really a Good Hedge?” by Cameron Crise on Bloomberg

 

“I identified 10 notable episodes of risk aversion over the past three decades, defining the duration of each as the peak-to-valley move in the S&P 500 index. I then calculated the performance of U.S. stocks, Treasuries, and gold during these episodes. Again, on this metric, gold looks pretty good as a risk-aversion hedge. By definition, equity market performance was poor, with an average loss of almost 20 percent per episode. Treasuries proved a useful offset, returning an average 3.4 percent and performing positively on seven occasions. Gold, meanwhile, was a star performer, rising almost 7 percent per episode, with gains in 8 of the 10 periods.”

 

Talk about taking the words right out of my mouth! I have been advising people to buy gold and silver as a hedge since 2004 and to see this was downright delightful. This was by far the best gold article that I have read all year. Do you have gold in your portfolio?

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